The fate of the music industry

With the arrival of streaming services such as Spotify, Pandora and Apple Music that are used by millions of people, one would think that the creator of a song would make a lot of money for receiving millions of streams right?

Wrong. According to Forbes, most songwriters earn a fraction of a cent per one stream.

“Spotify or Pandora will play a song millions and millions of times, and those are worth $10,” said songwriter Lee Thomas Miller, who wrote hits for Garth Brooks and Tim McGraw, in an interview with Bloomberg. “The business of songwriting and publishing is over unless they change the way we get paid.”

While streaming services offer a great platform for new artists to showcase their music as well as an easy and convenient way for us to enjoy the bands and artists we all love, it is an injustice that songwriters aren’t fairly compensated.

For those who aren’t familiar with music industry practices, it works like this:

Songwriters write songs that are typically owned or co-owned by publishing companies that handle the management, exploitation and royalty collection for them and the songwriter and publisher divide the income from the songs.

Songwriters and publishers earn mechanical royalties for the reproduction of a song on CDs and through digital platforms such as iTunes, Google Play and streaming services. They also earn performance royalties whenever a song is performed in public.

Another source of income for a song are synchronization fees which are paid whenever a song is used in film or television, but contracts for those are negotiated separately from royalties.

Mechanical royalty rates are set by the Copyright Royalty Board (CRB), a panel of judges appointed by the Library of Congress. The current mechanical rate for a sale is 9.1 cents and for streaming, mechanical rates are fractions of a cent per play.

According to music producer Bobby Owinski, for non-interactive services such as Pandora, they earn $0.0022 per stream. For interactive services such as Spotify, rates vary from $0.005 to $0.009.

These rates are usually paid directly to record labels, and what’s worse for songwriters who are signed to them is that they’re paid whatever percentage they agreed to with the label. This means that a songwriter would be paid 15% of $0.005 per stream.

The CRB began hearings in March to determine new mechanical royalty rates, which will be in effect from 2018 through 2022. Songwriters and publishers as well as streaming services will give testimony. The CRB will make its decision in December this year.

If royalty rates remain low and creators of music continue to not be properly compensated for the songs they write, there won’t be much incentive for many to continue to record new songs to be sold or streamed.

Companies offering streaming services that are lobbying for lower rates could unknowingly break the backbone of the entire music industry if they get their way by potentially causing songwriters to slow down their output of new songs or abandon recording their new songs altogether.

If most songwriters shift their business model to focus more on performing live and selling merchandise as their main source of income (similar to what Chance the Rapper is doing) than creating records, the lack of new songs arriving on many digital services will decrease their potential chances of profitability and will cause many of their investors to back out.

Therefore, if streaming services want to continue on and become profitable, then they’ll need to be willing to pay more to songwriters for their efforts. However, they’ll only pay the amount they are obligated to pay according to the rates set by the CRB.

The fate of the music industry hangs in the balance and it’s up to the CRB to make the right decision and increase royalty rates for songwriters and publishers to continue flourishing.